Friday, July 17, 2009

BLOG 69

Q. When is a tax increase not a tax increase?

A. When it is mitigating revenue losses. At least that is what the Exchequer Secretary to the Treasury, Sarah McCarthy-Fry, explained to parliament when she told it that the government intends to charge to landfill tax something that the Court of Appeal has held to be outside the scope of landfill tax and for which she told parliament, “The Government have accepted that decision”.

The Minister actually said, “I stress that this is a case of mitigating revenue losses and not extending the application of the tax” (Hansard, Public Bill Committee, 25.6.2009, col 639).

This concept of mitigating tax losses is a novel concept. What it appears to mean is that if the government wants to tax something, but introduces legislation that actually exempts it from the tax then, when they try again to tax it, they are not taxing something that was not previously taxable; they are simply mitigating the loss that the State has suffered because the government originally exempted it when they actually intended to tax it. I hope that is clear.

If the government were to say that they originally got it wrong but were now “extending the application of the tax” so that it catches the item in question, the Opposition parties and many commentators might label the extension of the application as a stealth tax. Mitigation of a loss is not a tax increase at all; it merely increases the tax that is being lost because the law did not reflect what the government would have enacted had they been bothered to think more carefully about what they wanted to do, and not bulldozed masses of legislation through parliament to a timetable that left no room for either themselves or the Opposition parties to work out what the government was trying to tax and ensure that the wording of the legislation achieved that objective.

Obviously, like me, the Minister is a fan of Humpty Dumpty, “when I use a word … it means just what I choose it to mean – neither more nor less”.

At least Ms Carthy-Fry’s ridiculous distinction between extending the application of a tax and mitigating revenue losses caused by the tax, not extending it to the item that she now proposes to tax, is a big advance on the approach of one of her predecessors, Dawn Primarolo.

When it was pointed out to her that legislation that she was introducing was unclear, she dismissed any suggestion of clarifying it before it was enacted in its unintelligible state with the statement:

“We expect people to be sensible. The tax system cannot be absolute and is not designed to be. The Schedule gives clear indicators of the type of development we want”.

In other words, “The law doesn’t matter; people should guess what the government wants them to do and do it, irrespective of whether or not the laws that we choose to enact require them to do”.

I doubt that even Lewis Carroll would have had the nerve to put forward such an outlandish proposition.